the profitability of affordable housing, #1

When I served on Trenton's City Council, and before, I had the opportunity to deal with housing developers. Most of these, particularly in Trenton, built affordable housing.

There were a number of reasons for this. Trenton had become the repository for economically challenged folks within the County following the post-WWII housing boom and the Eisenhower era road building. Princetonians talked a good game about social justice and high-minded ideals but their zoning, tax and planning structures spoke more truthfully; they wanted to talk about poor people, not live next to them. Trenton has far more than its share of affordable housing in the City.

Another reason for this beyond municipality policy was State policy. The State of NJ has a Coalition on Affordable Housing [COAH for short] that mandates that a % of new housing development include affordable housing [affordable being defined by a complex formula utilizing median income and local housing costs among other variables]. COAH also allowed for municipalities to "sell" their obligations to other municipalities. Trenton fed at this trough early and often.

For instance, Hopewell township, a wealthier community than even Princeton, was required some years ago to build a certain number of units of affordable housing to go along with additional market rate housing that had been built within the municipality. Instead of actually building that housing, Hopewell sent a fat check (usually $65,000.00 per unit) and its affordable housing obligation to Trenton. Hopewell made out by not having to build affordable units within their homogeneous community and not having to provide those commensurate services (social, school, fire, police). Trenton made out because they had few revenue sources and could bundle these checks to provide offsets for developers. This short-term gain never lasted as the City had to provide additional services and poverty became more concentrated.

After much public outcry, COAH did change this practice somewhat. As well, Trenton realized that these checks cost more than they paid out and stopped taking them. The damage had been done as poverty was concentrated in Trenton while good jobs increasingly resided in suburban and exurban locales.

Again, affordable housing was the name of the game in Trenton. And of all the developers I knew, the only millionaires were those that developed affordable housing. And why not, most of the units built had massive public subsidies backing them--either from the State, other local municipalities paying Trenton to build their mandated units or even federal $. Developer XYZ would propose building a 100 unit housing project, get a $100,000 per unit subsidy, finance $50,000 with private financing, get the municipality to market the project to prospective buyers (if it's homeownership) and sell those units for $85,000 per. There's a built in profit of $35,000 per unit and if they can keep the costs down, or self-finance, they make more per unit. And I haven't even gotten into PILOTs (payments in lieu of [property] taxes) which can last for 20 years.

This may seem a rather lengthy excursus on affordable housing, and perhaps misplaced on a pastor's blog, but part 2 of this subject should make this discourse a bit more germane to Waco.